Question
A house is for sale for $485,000. You have a choice of two 20-year mortgage loans with monthly payments: (1) if you finance 90% of
A house is for sale for $485,000. You have a choice of two 20-year mortgage loans with monthly payments: (1) if you finance 90% of the price, you can obtain a loan with a 4% rate of interest or (2) if you finance 80% of the price, you can obtain a loan with a 3.5% rate of interest. What is the effective annual rate of interest on the incremental amount borrowed on the first loan?
A borrower has secured a 30 year, $231,000 loan at 8% with monthly payments. Fifteen years later, the borrower has the opportunity to refinance with a fifteen year mortgage at 7.5%. However, the new loan requiers the borrower to pay 2 points at closing. What is the return on investment if the borrower expects to remain in the home for the next fifteen years?
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